Bitcoin reaches an all-time trading high of over $33

As the currency marches ahead, applications range from donations to gambling.

After rising steadily over the last several months, Bitcoin has reached an all-time high, according to data on Bitcoin Charts. As of this writing, Mt. Gox, the most popular Bitcoin trading site (which announced on Wednesday that its operations would move to Silicon Valley), recorded a high price of $33.22 per bitcoin.

There’s no single explanation for why Bitcoin has continued to rise, accelerating particularly over the last month. That said, it’s been clear that interest in the digital currency has been rapidly rising, as any regular reader of Ars knows.

It’s likely that online gambling has played a part. As we reported earlier this year, one Bitcoin-based site took in $500,000 in profit in just six months in 2012—and Bitcoin gambling is set to get even bigger. For now, gambling with the cryptocurrency, like using bitcoins in general, remains in a legal gray area (which may be part of the appeal as well).

Still, it’s been slowly gaining legitimacy in the marketplace, with groups like the Internet Archive and WordPress accepting donations and payment in the currency.

Of course, like any currency, Bitcoin is not immune to swings in the market—less than six months after hitting a high of over $30 per Bitcoin back in June 2011, the market crashed to $3.

Disclosure: Upon hearing of the all-time high today, I sold my final bitcoin at a price of $32.50.

Not only did he make a profit, he helped participate in the efficient operation of the market. By selling he is signaling that he thinks the market's exuberance is irrational, helping by the smallest margin to lower the price. Get enough people like that acting gradually and you might get something approaching stability!

Or we may just see more rampant speculation and another crash. Getting to watch a new currency teethe is a rare opportunity.

Another reason for the recent rising demand for bitcoin is that credit card companies have been cracking down on online pharmacies. This means that a lot more people are turning to alternative methods of payment for their pharmacy needs.

I'm going to assume that your intention was to imply illegitimacy of Bitcoin based on behaviour that differs from government-backed currencies.

Consider this: if the Euro, US Dollar, or any other government-backed currency weren't government-backed to begin with, what would their adoption timeline and exchange rate history look like?

That currencies like the Euro and US Dollar are government-backed, ensures near-instant adoption. They get a 'head start', and immediately start functioning primarily as a trade instrument, not a speculative instrument. Bitcoin does not have this "luxury" of having its usage being enforced, and as such its adoption stage looks very different, and involves primarily use as a speculative instrument. Only over time will Bitcoin slowly see less speculation and more trade usage. It's not a sign of illegitimacy - it's simply a consequence of not having that government head start.

The author fails to mention WHY bitcoins crashed last time around... It was because Mt Gox got hacked, and while this did not fundamentally damage the bitcoin system, it did cause panic, which crashed the price.

There is no reason to expect a large drop at 32 just because it happened last time.

That said, obviously don't invest more than you can afford to lose in a new experimental currency people!!!

We're probably approaching another bubble, like when Bitcoins dropped from $20 to $8 almost overnight. I had one (1.15something) that I sold ages ago for fifteen bucks.

That's not as likely as you think. The bubbles that have occurred in the past were primarily due to the 'novelty' of Bitcoin. It was not so much about Bitcoin being useful or practical to people, as it was the thrill (and in some cases, expectations of profit) of getting involved with it. It's similar to everyone buying the new iPhone when it comes out, even if their old iPhone still worked fine. The various crashes in the past can be primarily attributed to various security-related incidents of exchanges and other Bitcoin-storing service providers.

The security issues have mostly gone away by now. More importantly, the reasons for the rise of the exchange rate are significantly different now:

* Recently, the block reward was halved - this means that someone mining a block will now only receive 25 BTC instead of 50 BTC. This has caused an expectation of increasing scarcity of Bitcoins (as the amount of new users starts exceeding the amount of new Bitcoins), leading to deflation.* Wordpress recently started accepting Bitcoins as a payment method, suddenly making the legitimacy of Bitcoin explode in the public opinion, in a way.* Reddit only recently started accepting Bitcoins as payment method, which has a similar effect.

These aren't novelty reasons, they are reasons of either scarcity, practical use, or perception of legitimacy. These effects don't typically "wear off" (with the exception of the block reward halving, which people will eventually start forgetting about). This makes a seriously sharp drop in exchange rate much more unlikely than in the past.

As Avi Halaby, CEO of Epiphyte(2), once said: there is no point worrying about how the government collects tax.

They will always figure out a way to collect taxes and they have the power to adjust the law as necessary to make sure sufficient taxes are collected. If the current voluntary income reporting system for tax becomes too unreliable, they will figure out some alternative.

Basically, if bitcoins make it impossible to collect tax fairly, the correct solution would be to change how tax is collected; instead of outlawing bitcoins.

Because no nation's currency has ever had the same dramatic fluctuations right?

A currency's value is based off of the perception of the currency. Has one of the exchanhge's been hacked (bit coin)? Are they printing more currency to pay obligations? Is the credit rating of the country in jeoporady? Is the country in some turmoil that questions their future? The list could go on.

Value of currency is like the value of stock. If something extremely dramatic happens it will cause massive swings, usually harsh deprecation.

Bit coins valuation is based off of new interests in its applicability. If it proves to be a long term stable currency the vale will settle, just like any other.

But there IS a reason why it has been going up since December. That's when the 4 year mining cycle changed to give out half as many bitcoins every 10 minutes for mining a block. Assuming demand was keeping pace with the previous 50 BTC released into the market every 10 minutes, dropping to 25 BTC would definitely cause the price to rise.

Of course, that doesn't matter much to people who are buying things on silkroad or paying for their WordPress blog in BTC, since the cost of goods adjusts accordingly. But bitcoin is designed to increase in value with demand, it was always planned to be a finite resource, like the warren buffet stocks that never split.

Which explains why I figure/guess/feel that the price will begin to stabilize in this area, or at least why having the price this high isn't necessarily an indicator of insanity.

I'm not married to this notion, as you may have guessed from the firmness of my assertion.

Except that ASIC rigs will pretty much push any other mining method out of the realm of practically.

Of, course, I think there's only a few Avalon rigs out in the wild, another company is hoarding their rigs all to themselves until they pass the break even point/wear the chips out/get 51% of the network and take over. And then there's BFL - a.k.a "Box of Fans Labs".

The author fails to mention WHY bitcoins crashed last time around... It was because Mt Gox got hacked, and while this did not fundamentally damage the bitcoin system, it did cause panic, which crashed the price.

No. This was not the cause. The price was 14-18 USD on the days preceding the hack, and remained around 14-18 USD for a full month after the hack.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. That idea in itself is broken.

To be a viable currency, a currency does not have to be inflationary. The only thing that would be a requirement for, is to keep alive the (broken) system as it stands.

I find the ridiculous fluctuations of Bitcoin's prices hilarious. In fact, it completely undermines the original purpose of Bitcoin, which as to provide stability, but the value of Bitcoin in reality deflates and inflates far more than most currencies in the world. The reason is because the designers were not smart enough to realize that the value of a currency had a lot more to do with than simply how many were in circulation.

Of course, Bitcoin is doing okay now as the currency for illegal activities. And the illegal actors are promoting it so they can launder their black money into white, so its not surprising its value has risen.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. That idea in itself is broken.

To be a viable currency, a currency does not have to be inflationary. The only thing that would be a requirement for, is to keep alive the (broken) system as it stands.

You do realize that Bitcoin saw over 100% inflation last year, right?

Edit: My bad. The inflation was in 2011. And also it was closer to 1000% rather than 100%. It was far closer to Zimbabwean style inflation than I expected.

But to reiterate. Bitcoin survives because of its usefulness in illegal transactions, and the efforts of the beneficiaries of those illegal transactions to make it legitimate.

Oh, and the idiot Internet people who think that just because they heard about it on the Internet first, it is superior. Like that blonde in the State Farm commercial.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. ...

Actually, I can definitely appreciate inflation in regards to my mortgage and car loan. Not so much my "basket of goods", so to speak.

It's going up because it's an effective currency for money laundering. The amount of money that needs to be laundered from cartels is quite high. The supply of Bitcoin is limited. The total value of all Bitcoin is far below the amount of money needed to be laundered. So the value keeps going up and up and will probably do so well into the future.

There is just too much money in cartel hands that can't be used. If they are able to effectively leverage Bitcoin to clean money that will cause the value of the currency to skyrocket.

Edit: Alright, maybe not by cartels yet since they have too much to launder and the total value of all Bitcoin is about 2.5 mil. But the point remains is that it has a high value for performing black market exchanges, and that will drive up the value.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. That idea in itself is broken.

To be a viable currency, a currency does not have to be inflationary. The only thing that would be a requirement for, is to keep alive the (broken) system as it stands.

You do realize that Bitcoin saw over 100% inflation last year, right?

Edit: My bad. The inflation was in 2011. And also it was closer to 1000% rather than 100%. It was far closer to Zimbabwean style inflation than I expected.

But to reiterate. Bitcoin survives because of its usefulness in illegal transactions, and the efforts of the beneficiaries of those illegal transactions to make it legitimate.

Oh, and the idiot Internet people who think that just because they heard about it on the Internet first, it is superior. Like that blonde in the State Farm commercial.

You're confusing inflation-by-design (traditional government-backed currencies) with inflation because of events. The former is constant (as in, it always happens because that's how the currency is designed), while the latter is nothing more than a description of what's happening with the exchange rate. The next day, deflation could take place. These are normal market workings.

As for "[...] and the efforts of the beneficiaries of those illegal transactions to make it legitimate.", I'd like to see a source on that. Unless you were trying to suggest that Condé Nast are "beneficiaries of illegal transactions" - let's not forget that they still own Reddit.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. ...

Actually, I can definitely appreciate inflation in regards to my mortgage and car loan. Not so much my "basket of goods", so to speak.

I'm more refering to the effects of inflation on a global scale, not on a personal scale. On a global scale it promotes endless consumerism and constantly increasing consumption. That is inherently incompatible with reality (as can be seen from all the things that are slowly starting to collapse).

It's going up because it's an effective currency for money laundering. The amount of money that needs to be laundered from cartels is quite high. The supply of Bitcoin is limited. The total value of all Bitcoin is far below the amount of money needed to be laundered. So the value keeps going up and up and will probably do so well into the future.

There is just too much money in cartel hands that can't be used. If they are able to effectively leverage Bitcoin to clean money that will cause the value of the currency to skyrocket.

Edit: Alright, maybe not by cartels yet since they have too much to launder and the total value of all Bitcoin is about 2.5 mil. But the point remains is that it has a high value for performing black market exchanges, and that will drive up the value.

Last I checked there were somewhere around 11 million bitcoins in circulation, at ~$32 each. That's far beyond 2.5 million. Still not enough to do laundering on a large scale, but well beyond what you mention.

And as you mention, grey/black market activity will be what ensures it's success, propels it beyond the threshold where people don't take it seriously. Just like the other long list of new things that caught on due to initial demand from questionable sources.

Maybe not, the problem with bitcoin is that there's a limited supply. More money can always be printed, in fact that leads to inflation which is a net positive.

But as of right now there's going to be an absolute "limit" on bitcoins (last time I checked, if it's been raised feel free to correct me). Which, will be weird. It could cause them to be worthless, or to rocket sky high.

The limited supply is a positive characteristic, not a negative one.

The only way inflation and printing on demand can be considered a 'good' thing, is if your ultimate desire is to keep an unsustainable economic system running that is based on absolutely maximized consumption, no matter what. That idea in itself is broken.

To be a viable currency, a currency does not have to be inflationary. The only thing that would be a requirement for, is to keep alive the (broken) system as it stands.

You do realize that Bitcoin saw over 100% inflation last year, right?

Edit: My bad. The inflation was in 2011. And also it was closer to 1000% rather than 100%. It was far closer to Zimbabwean style inflation than I expected.

But to reiterate. Bitcoin survives because of its usefulness in illegal transactions, and the efforts of the beneficiaries of those illegal transactions to make it legitimate.

Oh, and the idiot Internet people who think that just because they heard about it on the Internet first, it is superior. Like that blonde in the State Farm commercial.

It just needs to get by until people take it seriously. Illegal or not, people using it lends legitimacy. Now WordPress and other hosting sites are beginning to take it. The EU recognizes it as an official currency now. It won't take too much to tip it far enough to be come mainstream. But there are plenty of bitcoin-like currencies, the key is for people to use it so it gains legitimacy, and the grey/black markets can do that just as well as anything else.

It's going up because it's an effective currency for money laundering. The amount of money that needs to be laundered from cartels is quite high. The supply of Bitcoin is limited. The total value of all Bitcoin is far below the amount of money needed to be laundered. So the value keeps going up and up and will probably do so well into the future.

There is just too much money in cartel hands that can't be used. If they are able to effectively leverage Bitcoin to clean money that will cause the value of the currency to skyrocket.

Edit: Alright, maybe not by cartels yet since they have too much to launder and the total value of all Bitcoin is about 2.5 mil. But the point remains is that it has a high value for performing black market exchanges, and that will drive up the value.

How would you use Bitcoin for money laundering?

Money laundering is about creating a plausible source of your money to make it legal. Saying "bitcoin" isn't just a magic word that can get you off the hook, authorities will still ask why people are giving you bitcoins to sell, or where your massive bitcoin farm is.

Money laundering is about creating a plausible source of your money to make it legal. Saying "Bitcoin" isn't just a magic word that can get you off the hook, authorities will still ask why people are giving you bitcoins to sell, or where your massive Bitcoin farm is.

These days, "Money Laundering" seems to be code for "using money normally if we don't like the way you earned it." But further discussion of that is going to involve the *IAA and Mr. Dotcom, so let's leave it there.

That said: Yes, at most, Bitcoin could be part of a money laundering scheme. It could securely separate the place where value is earned and the place where that value is spent.

A gradual increase in value I can understand as these things are certainly true:

* More places are accepting bitcoin* More people are aware of bitcoin* It is getting, slowly, easier to acquire bitcoin in exchange for cash* The bitcoin generation rate has slowed

However for the market cap to have doubled in 2 months is just a bubble. "The fundamentals have changed" is always an argument to support a bubble. Maybe they have indeed changed but I don't think that supports a doubling in value in 8 weeks.

Black market uses of bitcoin have always existed, is there any evidence these are significantly more popular than they were only 8 weeks ago?

With regards to places like wordpress now accepting bitcoin, they haven't suddenly stopped accepting their previous forms of payment so while it could make a difference it will be a gradual migration rather than a sudden change.

This chart http://blockchain.info/charts/n-unique-addresses shows the number of unique bitcoin addresses in use each day. If we use that as a rough proxy of the number of people involved in transactions each day then it has been slowly increasing for some time, but again there is no dramatic change in the last 2 months.

Regarding the bitcoin generation rate, that changed towards the end of november, however the recent significant uptick in exchangeable value doesn't change from a gradual climb to it's steeper current gradient until the middle of January (indeed it was flat for the entire of December). What is the evidence that the production rate has directly affected the value?

I would argue that the recent price increase is just speculation and it will go the same way as any similar bubble in a financial product, from tulips, to .com to housing.

If I had a significant BTC investment I'd be pulling my cash out now.. (I have a whole 0.5 BTC).